The Legg Mason Funds
Baltimore, Maryland

Re: Comments on the Proposed Rules in Investment Company Act Release No. 25775 (File No. S7-40-02) Required by Section 407 of the Sarbanes-Oxley Act of 2002

Ladies and Gentlemen:

We are writing on behalf of the Independent Directors/Trustees ("Directors")1 of the twelve corporations and business trusts that comprise the Legg Mason family of funds (the "Legg Mason Funds") to comment on the Commission's proposed rulemaking under Section 407 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). The Legg Mason Funds are registered as open-end management investment companies under the Investment Company Act of 1940, as amended. All members of the Legg Mason Funds' Audit Committees are Independent Directors of the Funds.

The Independent Directors support the Commission's efforts to strengthen corporate governance and promote investor confidence in the financial markets; however, we believe that the proposed rules requiring each investment company's audit committee to have a member that would qualify as a "financial expert" or to disclose why it does not have such an expert should be amended and clarified.2 Our comments will focus on improving and adapting the proposal to investment companies, rather than on challenging the application of the entire proposal to investment companies.3 In particular, we have two suggestions: (1) that investment companies not be required to disclose the number or identity of their financial experts and (2) that the Commission take action to clarify that the responsibilities and potential liability of both the financial experts and the other audit committee members would not be changed by the proposed rules.

Disclosure of Number and Identity of "Financial Experts"

We oppose the provisions in the proposed rules that would require investment companies to disclose annually the number and identity of their financial experts in their Form N-CSR filings. Section 407 of Sarbanes-Oxley does not require this disclosure. Disclosure should be sufficient if it notes that one or more members of the audit committee are financial experts as defined by the Commission's rules and that such experts have experience in preparing or auditing financial statements of registered investment companies or comparable entities.

We believe that revealing the number of an investment company's financial experts could cause shareholders to draw misleading conclusions that, for example, companies with fewer financial experts are less honest or less committed to overseeing the audit process or that having more financial experts on an audit committee somehow elevates the quality and accuracy of an investment company's financial statements.

We also think that the proposed rules should be amended to drop the requirement that investment companies disclose the names of their financial experts. Identifying the financial experts would be an intrusion into these directors' privacy without any real offsetting benefit to shareholders. Additionally, naming the financial experts could perpetuate a false impression among shareholders that financial experts have more involvement with a fund's financial statements and audits or increased obligations to investment companies and their shareholders than other audit committee members. Moreover, while the Commission seems strongly supportive of not increasing the obligations and liability of those persons designated as financial experts,4 naming them could increase their likelihood of being sued. Finally, naming individual financial experts likely would make it more difficult for investment companies to find qualified persons who would be willing to serve as directors and financial experts.

Clarification of Responsibilities and Liability of "Financial Experts"

We believe that the Commission should reemphasize in a more forceful and expansive manner that financial experts, simply by reason of their designation or status as experts under the proposed rules, are not responsible for the preparation or oversight of preparation, of a fund's financial statements, are not a part of the audit function for the fund and do not participate in a fund's independent audit. In this regard, the rules themselves should make clear that financial experts do not have more responsibilities or obligations and are not subject to different standards of liability than are other audit committee members. We acknowledge that the proposing release states that "the mere designation of the financial expert should not impose a higher degree of individual responsibility or obligation on a member of the audit committee" and that the Commission does not intend for such a designation to decrease the obligations of other audit committee members or the board of directors. In addition, we realize that the Commission has noted that it does not intend for financial experts to be considered "experts" in the context of Section 11 of the Securities Act of 1933, as amended, and, therefore, they would not be subject to the higher level of responsibility imposed by this Section.5 While we agree with the Commission's position on this matter (except for the one difference discussed below), we are concerned that without further and repeated clarification of this issue in the rules and otherwise, persons who would qualify to be financial experts might be reluctant to serve as such due to an expectation that they would be more responsible for the financial statements and audit process and thus, more exposed to liability. In addition, confusion about the role of financial experts could adversely affect the dynamics of audit committee activities by causing other audit committee members to inappropriately defer to the judgment of the financial experts on the committee when questions or concerns arise with the financial statements or the audit process.

The one difference we have with the Commission's statements on the responsibilities and liability of financial experts under the proposed rules is that its frame of reference is the designation of the financial expert. As we do not believe that the Commission meant to limit its statements in this way, we believe that the rules should clarify that the Commission's frame of reference extends from the time a financial expert is chosen through his or her entire term of service as such an expert. Thus, we would suggest that the Commission clarify its position by stating that the mere designation as and status as a financial expert pursuant to the rules would not result in the financial expert's being subject to additional responsibilities or liability.

Beyond the proposed change in wording noted above, we believe the Commission should explicitly indicate in the rules that the proposed rules do not increase or change in any manner the responsibilities or potential liability of any audit committee member, including any financial expert, under the federal securities laws or state law. For example, the Commission could note that the role of a financial expert is not to be the ultimate arbiter or guarantor of the committee's determinations. We believe that consistent and clear statements on this matter by the Commission in the final rules would give comfort to qualified directors of investment companies to agree to serve as financial experts.

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As a final note, we support the requests made by others that the Commission provide an extended transition period for the effectiveness of the proposed rules with respect to investment companies so that there is sufficient time for investment companies to identify, evaluate, appoint and/or elect directors who qualify as financial experts.

The Legg Mason Funds' Independent Directors are those members of the Boards who are not "interested persons" of the Funds as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended.

The Boards have not determined whether any current Directors would qualify as financial experts under the proposed rules. Once the rules are finalized, the Boards will endeavor to review the backgrounds of the Directors to ascertain who would qualify as a financial expert and would be willing to serve as such.

In this regard, we generally agree with the comments of others, including the Investment Company Institute, that the Commission should consider excluding investment companies from the requirements of the proposed rules altogether or broadening the definition of "financial expert" for investment companies to take into account the more straightforward nature of their financial statements as compared to operating companies.